Employment practices claims could soar this year as more companies lay off workers in a faltering economy—particularly in the financial institutions sector, professional liability underwriters here predicted.
Damage caused by the subprime debacle and resulting credit crunch, along with soaring energy costs, have “undermined the stability of workplace conditions” across the economy, according to James Gray, executive vice president and chief underwriting officer for professional liability at Max Bermuda Ltd.
“There’s lots of downsizing and restructuring as a result,” he said, noting that such activity “could trigger employment practices claims.”
“When companies are teetering on the edge, it affects the workplace psychology,” he added during a panel discussion yesterday at the Professional Liability Underwriting Society’s “Bermuda Perspective” conference. “An every-man-for-himself mentality takes hold.”
He urged employers to do a “disparate impact analysis” when planning layoffs.
“I don’t mean to sound like Scrooge,” he added, “but from an employment practices perspective, it’s better to close an entire facility rather than spread workforce reductions across the company. There are fewer individual choices to dispute.”
The odds of seeing employment practices claims filed are also greater because it’s harder for people who are let go to find new positions today, according to James Loder, vice president of underwriting at XL Insurance (Bermuda) Ltd.
“If someone lost their job in the last few years, they would probably leave gracefully and get a new position across the street in a booming economy,” he said, adding that “even if they thought they might have a cause of action, they might not pursue it,” to avoid getting a reputation within the industry as a troublemaker.
“But now,” he said, “with everybody laying people off, it’s harder to get a new job, so those who are laid off are more sensitive to possible discrimination and are more likely to sue.”
Mr. Loder said that the “financial services sector is more problematic” in terms of its vulnerability to EPL claims “because of its higher pay scale.”
“In a recession, all industries and companies are at risk” of seeing more EPL suits, “but generally those with higher pay raise the quantum stakes,” he said.
The costs of such claims can balloon in a hurry, according to Mr. Gray, because “it’s not always just about the money. It’s about changing the company’s culture and priorities. The settlement might call for diversity training, a mentoring program and monitoring, and the expense adds up.”
He warned that some EPL policies “don’t recognize these corrective measures as covered costs, since it’s not a monetary payment,” urging brokers and risk managers to pay close attention to how forms are written to make sure such contingencies are in fact insured.